Undr GAAP, there are two types of leases - an operating lease and a capital lease.

The rules for determining if a lease is capitalized are generally related to who has the risks and rewards of ownership.

If you treat your lease as an operating lease, your highway tractor will not be recognized on your balance sheet as an asset and perhaps a liability until you purchase it at the end of the lease. Your debt is treated "off the books" so to speak, but is usually disclosed in the financial notes section of a set of financial statements.

If your lease is classified as a capital lease, then your highway tractor is recognized on your balance sheet as an asset and liability at the beginning of the lease.

For tax purposes, it is my understanding that there is no distinction between a capital lease and an operating lease which is why CRA is telling you to treat it as an operating lease.

As most sole proprietors prepare their books to enable them to complete their tax return, it is acceptable to prepare your books on a tax basis rather than on a GAAP basis.

So follow the first link above and you will find the bookkeeping entry you need under Operating Leases about mid-way down the page.

I'm just curious, what is a highway tractor? Is it like a flat deck?

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